This management's discussion and analysis of financial condition as of June 30,
2012 and results of operations for the three and six months ended June 30, 2012
and 2011 should be read in conjunction with the financial statements included in
our Special Financial Report on Form 10-K for the year ended December 31, 2011
which was filed with the SEC on May 7, 2012.

The discussion and analysis below includes certain forward-looking statements
related to future operating losses and our potential for profitability, the
sufficiency of our cash resources, our ability to obtain additional equity or
debt financing, possible partnering or other strategic opportunities for the
development of our products, as well as other statements related to the progress
and timing of product development, present or future licensing, collaborative or
financing arrangements or that otherwise relate to future periods, which are all
forward-looking statements as defined by the Private Securities Litigation
Reform Act of 1995. These statements represent, among other things, the
expectations, beliefs, plans and objectives of management and/or assumptions
underlying or judgments concerning the future financial performance and other
matters discussed in this document. The words "may," "will," "should," "plan,"
"believe," "estimate," "intend," "anticipate," "project," and "expect" and
similar expressions are intended to identify forward-looking statements. All
forward-looking statements involve certain risks, uncertainties and other
factors described elsewhere in this report and in our Special Financial Report
on Form 10-K for the year ended December 31, 2011, that could cause our actual
results of operations, performance, financial position and business prospects
and opportunities for this quarter and the periods that follow to differ
materially from those expressed in, or implied by, those forward-looking
statements. We caution investors not to place significant reliance on the
forward-looking statements contained in this report. These statements, like all
statements in this report, speak only as of the date of this report (unless
another date is indicated) and we undertake no obligation to update or revise
forward-looking statements.

Overview

We are a biotechnology company focused on discovering, developing and
commercializing innovative therapies addressing major unmet medical needs using
RNAi-targeted technologies. We are pursuing proprietary therapeutics based on
RNA interference ("RNAi"), a naturally occurring cellular mechanism that has the
potential to effectively and selectively interfere with, or "silence,"
expression of targeted disease-associated genes.

Certain human diseases result from overexpression of one or more genes. We
believe that these types of human diseases can potentially be treated by
silencing (reducing) the overexpressed genes. While no therapeutic RNAi products
have been approved by the Food and Drug Administration ("FDA") to date, there
has been significant interest in the field of RNAi therapeutic development. This
interest is driven by the potential ability to use RNAi to develop lead
compounds that specifically and selectively inhibit single target genes, many of
which are thought to be incapable of being inhibited by other modalities.
RXI-109, our first RNAi product candidate, is a dermal anti-scarring
investigative therapy that targets connective tissue growth factor ("CTGF"). The
Company received the FDA's clearance to enter clinical trials with RXI-109, and
with this clearance the Company initiated a Phase 1 clinical trial in 2012.
Because abnormal overexpression of CTGF is implicated in dermal scarring and
fibrotic disease, we believe that RXI-109 or other CTGF-targeting RNAi compounds
may be able to treat other indications, including pulmonary fibrosis, liver
fibrosis, acute spinal injury, ocular scarring and restenosis. We intend to
maintain our core RNAi discovery and development capability and to develop
products both on our own and through collaborations.

Research and Development

To date, our research programs have focused on identifying product candidates
and optimizing the delivery method and technology necessary to make RNAi
compounds available by local, systemic or oral administration, as appropriate
for disease for which we intend to develop an RNAi therapeutic. Since we
commenced operations, research and development has comprised a significant
proportion of our total operating expenses and is expected to comprise the
majority of our spending for the foreseeable future.

There are risks in any new field of drug discovery that preclude certainty
regarding the successful development of a product. We cannot reasonably estimate
or know the nature, timing and costs of the efforts necessary to complete the
development of, or the period in which material net cash inflows are expected to
commence from, any product candidate. Our inability to make these estimates
results from the uncertainty of numerous factors, including but not limited to:

• Our ability to advance product candidates into preclinical research and
clinical trials;

• The scope and rate of progress of our preclinical program and other
research and development activities;

• The scope, rate of progress and cost of any clinical trials we commence;

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• The cost of filing, prosecuting, defending and enforcing patent claims and
other intellectual property rights;

• Clinical trial results;

• The terms and timing of any collaborative, licensing and other
arrangements that we may establish;

• The cost and timing of regulatory approvals;

• The cost of establishing clinical and commercial supplies of our product
candidates and any products that we may develop;

• The cost and timing of establishing sales, marketing and distribution
capabilities;

• The effect of competing technological and market developments; and

• The effect of government regulation and insurance industry efforts to
control healthcare costs through reimbursement policy and other cost
management strategies.

Failure to complete any stage of the development of our product candidates in a
timely manner could have a material adverse effect on our operations, financial
position and liquidity.

Critical Accounting Policies and Estimates

Our significant accounting policies are described in Note 2 of the notes to the
financial statements of our Annual Report on Form 10-K for the year ended
December 31, 2012, which we filed with the SEC on May 8, 2012. Not all of these
significant policies, however, fit the definition of critical accounting
policies and estimates. The Company believes that the accounting policies
relating to the predecessor financial statements and carve-out financial
statements, research and development expenses, stock-based compensation and the
accounting for convertible preferred stock fit the description of critical
accounting policies and estimates.

Predecessor's Financial Statements and Carve-Out Financial Statements

Prior to April 13, 2011, Galena was engaged primarily in conducting discovery
research and preclinical development activities based on RNAi, and Galena's
financial statements for periods prior to April 13, 2011 reflected solely the
assets, liabilities and results of operations attributable to Galena's
RNAi-based assets, liabilities and results of operations. On April 13, 2011,
Galena broadened its strategic direction by adding the development and
commercialization of cancer therapies that utilize peptide-based immunotherapy
products, including a main product candidate, NeuVax, for the treatment of
various cancers. On September 24, 2011, Galena contributed to RXi, a newly
formed subsidiary of Galena, substantially all of Galena's RNAi-related
technologies and assets. The newly formed RXi was incorporated on September 8,
2011 with the issuance of 100 initial shares at a price of $0.01 per share for
total consideration of $1.00. RXi was not engaged in any activities other than
its initial incorporation from September 8, 2011 to September 23, 2011

As a result of these transactions, the historical financial information for the
three and six months ended June 30, 2011, as well as the cumulative period from
inception (January 1, 2003) through June 30, 2012, has been "carved out" of the
financial statements of Galena, as our "Predecessor". Such financial information
is limited to Galena's RNAi-related activities, assets and liabilities only, and
excludes activities, assets and liabilities that are attributable to Galena's
cancer therapy activities. The financial information for the cumulative period
from inception through June 30, 2012 includes Galena's RNAi-related activities
through September 23, 2011 and also includes the results of RXi for the period
from September 24, 2011 to June 30, 2012.

The carved-out financial information includes both direct and indirect expenses.
The historical direct expenses consist primarily of the various costs for
technology license agreements, sponsored research agreements, fees paid to
scientific advisors and employee expenses of employees directly involved in
RNAi-related activities. Indirect expenses represent expenses incurred by Galena
that were allocable to the RNAi business. The indirect expenses are based upon
(1) estimates of the percentage of time spent by Galena employees working on
RNAi business matters and (2) allocations of various expenses associated with
the employees, including salary, benefits, rent associated with the employees'
office space, accounting and other general and administrative expenses. The
percentage of time spent by Galena employees was multiplied by these allocable
expenses to arrive at the total employee expenses allocable to the RNAi business
and reflected in the carved out financial statements. Management believes the
assumptions underlying the carve-out financial information are reasonable;
however, the financial position, expenses and cash flows may have been
materially different if the RNAi business had operated as a stand-alone entity
during the periods presented.

Research and Development Expenses

Research and development costs are expensed as incurred. Included in research
and development costs are wages, benefits, facilities, supplies, external
services, and other operating costs and overhead directly related to the
Company's research and development departments, as well as costs to acquire
technology licenses.

Stock-based Compensation

The Company follows the provisions of ASC 718, which requires the measurement
and recognition of compensation expense for all stock based payment awards made
to employees and non-employee directors, including employee stock options. Stock
compensation expense based on the grant date fair value estimated in accordance
with the provisions of ASC 718 is recognized as an expense over the requisite
service period.

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For stock options granted as consideration for services rendered by
non-employees, the Company recognizes compensation expense in accordance with
the requirements of FASB ASC Topic 505-50, " Equity Based Payments to Non-
Employees ". Non-employee option grants that do not vest immediately upon grant
are recorded as an expense over the vesting period of the underlying stock
options. At the end of each financial reporting period prior to vesting, the
value of these options, as calculated using the Black-Scholes option-pricing
model, will be re-measured using the fair value of the Company's common stock
and the non-cash compensation recognized during the period will be adjusted
accordingly. Since the fair market value of options granted to non-employees is
subject to change in the future, the amount of the future compensation expense
will include fair value re-measurements until the stock options are fully
vested.

Convertible Preferred Stock

On April 27, 2012, the Company received net proceeds of $8.1 million from the
issuance of the convertible preferred stock ("Series A Preferred Stock"). The
Company first assessed the preferred stock under ASC 480, "Distinguishing
Liabilities from Equity", and it was determined it was not within the scope of
ASC 480. The preferred stock was then assessed under ASC 815, "Derivatives and
Hedging".

The preferred stock is convertible into common stock at the holders' option,
subject to the terms of the Certificate of Designations. This embedded feature
meets the definition of a derivative. The Company believes that the Series A
Preferred Stock is an equity host for the purposes of assessing the embedded
conversion option for potential bifurcation. The Company concluded that the
conversion option feature is clearly and closely related to the preferred stock
host. As such, the conversion feature did not require bifurcation under ASC 815.

The preferred stock was then assessed under ASC 470, "Debt with Conversion
Features and Other Options", to determine if there was a beneficial conversion
feature (BCF). The BCF compares the carrying value of the preferred stock after
the value of any derivatives has been allocated from the proceeds to the
transaction date value of number of shares that the holder would receive upon
conversion. The calculation resulted in a BCF of $9,500,000. The BCF was
recorded in additional paid-in capital.

The Company has recorded the Series A Preferred Stock in temporary equity as,
the Company may not be able to control the actions necessary to issue the
maximum number of common shares needed to provide for a conversion in full of
the then outstanding Series A Preferred Stock, at which time a holder of the
Series A Preferred Stock may elect to redeem their preferred shares outstanding
in the amount equal to the face value per share, plus unpaid accrued dividends.
The initial carrying value of the preferred stock was $9,500,000. The conversion
option of the Series A Preferred Stock is immediately exercisable, therefore the
$9,500,000 discount related to the BCF was immediately accreted to preferred
dividends, resulting in an increase in the carrying value of the Series A
Preferred Stock to $9,500,000.

Results of Operations

We have generated no revenues since our inception, and anticipate that no
revenues will be generated for the six months ended June 30, 2012. Accordingly,
for accounting purposes we are considered a development stage company.

The Company has not generated any revenues since inception nor are any revenues
expected for the foreseeable future. The Company expects to incur significant
operating losses for the foreseeable future while the Company advances its
future product candidates from discovery through pre-clinical studies and
clinical trials and seek regulatory approval and potential commercialization,
even if the Company is collaborating with pharmaceutical and larger
biotechnology companies. In addition to these increasing research and
development expenses, the Company expects general and administrative costs to
increase as the Company recruits additional management and administrative
personnel. The Company will need to generate significant revenues to achieve
profitability and may never do so.

For the Three and Six Months Ended June 30, 2012 and 2011

For the three months ended June 30, 2012, our net loss was approximately
$7,599,000 compared with a net loss of $1,882,000 for the three months ended
June 30, 2011. The loss increased by $5,717,000 or approximately 303%.
Variations in the losses between the two periods are discussed below.

For the six months ended June 30, 2012, our net loss was approximately
$9,524,000 compared with a net loss of $5,723,000 for the six months ended June
30, 2011. The loss increased by $3,801,000, or approximately 66%. Variations in
the losses between the two periods are discussed below.

For the three months ended June 30, 2012, our net loss applicable to common
stockholders was approximately $17,217,000 compared with a net loss applicable
to common stockholders of $1,882,000 for the three months ended June 30, 2011.
The loss increased by $15,335,000 or approximately 814%. Variations in the
losses between the two periods are discussed below.

For the six months ended June 30, 2012, our net loss applicable to common
stockholders was approximately $19,142,000 compared with a net loss applicable
to common stockholders of $5,723,000 for the six months ended June 30, 2011. The
loss increased by $13,419,000, or approximately 234%. Variations in the losses
between the two periods are discussed below.

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Research and Development Expense

Research and development expense consists primarily of compensation-related
costs for our employees dedicated to research and development activities and for
our Scientific Advisory Board ("SAB") members, as well as clinical trial
preparation costs, licensing fees, patent prosecution costs, and the cost of lab
supplies used in our research and development programs. We expect research and
development expenses to increase as we expand our discovery, development and
clinical activities.

Total research and development expenses were approximately $6,947,000 for the
three months ended June 30, 2012, compared with $1,792,000 for the three months
ended June 30, 2011. The increase of $5,155,000, or 287%, was primarily due to
the fair value of common stock issued in exchange for patent and technology
rights of $6,173,000 and an increase of $45,000 in non-employee non-cash stock
based compensation primarily related to the changes in Black-Scholes assumptions
offset by a decrease of $1,023,000 in research and development expenses due to
lower personnel costs and a decrease of $40,000 in employee stock based
compensation.

Total research and development expenses were approximately $8,100,000 for the
six months ended June 30, 2012, compared with $3,948,000 for the six months
ended June 30, 2011. The increase of $4,152,000, or 105%, was primarily due to
the fair value of common stock issued in exchange for patent and technology
rights of $6,173,000 and an increase of $175,000 in non-employee non-cash stock
based compensation primarily related to the changes in Black-Scholes assumptions
offset by a decrease of $1,948,000 in research and development expenses due to
lower personnel costs and a decrease of $248,000 in employee stock based
compensation.

General and Administrative Expense

General and administrative expenses include compensation-related costs for our
employees dedicated to general and administrative activities, legal fees, audit
and tax fees, consultants and professional services, and general corporate
expenses.

General and administrative expenses were approximately $716,000 for the three
months ended June 30, 2012, compared with $1,046,000 for the three months ended
June 30, 2011. The decrease of $330,000, or 32%, was primarily due to a decrease
of $226,000 in general and administrative expenses due to lower personnel
related costs and professional and outside services, a decrease of $112,000 in
employee stock based compensation offset by an increase of $8,000 related to the
fair value of common stock warrants issued in exchange for services.

General and administrative expenses were approximately $1,468,000 for the six
months ended June 30, 2012, compared with $4,165,000 for the three months ended
June 30, 2011. The decrease of $2,697,000, or 64%, was primarily due to a
decrease of $1,472,000 in general and administrative expenses due to lower
personnel related costs and professional and outside services, a decrease of
$1,134,000 in employee stock based compensation, a decrease of $23,000 related
to the fair value of our Parent Company's common stock issued for services, and
a decrease of $68,000 related to the fair value of common stock warrants issued
in exchange for services.

Interest Income (Expense)

The key objectives of our investment policy are to preserve principal and ensure
sufficient liquidity, so our invested cash may not earn as high a level of
income as longer-term or higher risk securities, which generally have less
liquidity and more volatility.

Interest expenses were approximately $6,000 for the three months ended June 30,
2012, compared with interest income of $1,000 for the three months ended
June 30, 2011. The decrease of $7,000 or 700% was primarily due to interest
expense from the bridge notes funded by TCP and RTW.

Interest expenses were approximately $27,000 for the six months ended June 30,
2012, compared with no interest expense or income for the six months ended
June 30, 2011. The increase of $27,000 was primarily due to the interest expense
from the bridge notes funded by TCP and RTW. The key objectives of our
investment policy are to preserve principal and ensure sufficient liquidity, so
our invested cash may not earn as high a level of income as longer-term or
higher risk securities, which generally have less liquidity and more volatility.

Other Income/Expense

Other income was $70,000 the three months ended June 30, 2012, compared with
$955,000 for the three months ended June 30, 2011 which related to the change in
the fair value of Galena's derivatives potentially settleable in cash issued in
connection with several financing transactions.

Other income was $71,000 for the six months ended June 30, 2012, compared with
$2,390,000 for the six months ended June 30, 2011 which related to the change in
the fair value of Galena's derivatives potentially settleable in cash issued in
connection with several financing transactions.

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Series A Preferred Stock Accretion and Dividends

The $9.6 million in the accretion of Series A convertible Preferred Stock and
dividends for the three and six months ended June 30, 2012, consists of $9.5
million related to the beneficial conversion feature of the Series A Preferred
Stock that we have accreted to preferred dividends, as described Note 1 to the
condensed financial statements and $0.1 million in dividends payable on shares
of our Series A Preferred Stock.

Liquidity and Capital Resources

We had cash and cash equivalents of approximately $7.6 million as of June 30,
2012, compared with $0.6 million as of December 31, 2011. As of April 27, 2012,
the Company completed the spin-off from Galena and issued 9,500 of Series A
Preferred Stock to TCP and RTW upon the conversion of the $1,026,736 principal
and accrued interest under the bridge notes outstanding at this date and the
receipt of the remaining $8,473,624 from TCP and RTW, as provided for in the
securities purchase agreement. At the closing of the spin-off transaction, RXi
reimbursed Galena and TCP $300,000 and $100,000, respectively, for transaction
related expenses. The Company believes that the cash available at June 30, 2012
should be sufficient to fund RXi's operations into the second quarter of 2013.
We expect to incur significant operating losses as we advance our product
candidates through the drug development and regulatory process. We have not
generated revenue to date and may not generate product revenue in the
foreseeable future, if ever. In the future, RXi will be dependent on obtaining
funding from third parties, such as proceeds from the sale of equity, funded
research and development programs and payments under partnership and
collaborative agreements, in order to maintain RXi's operations and meet RXi's
obligations to licensors. There is no guarantee that debt, additional equity or
other funding will be available to the Company on acceptable terms, or at all.
If the Company fails to obtain additional funding when needed, RXi would be
forced to scale back, or terminate the Company operations or to seek to merge
with or to be acquired by another company.

Net Cash Flow from Operating Activities

Net cash used in operating activities was approximately $2,655,000 for the six
months ended June 30, 2012, compared with $5,062,000 for the six months ended
June 30, 2011. The decrease of approximately $2,407,000 related primarily to the
Company's net loss of $9,524,000 for the six months ended June 30, 2012 as
compared to $5,723,000, as described above, and the adjustments to net loss for
non-cash items to arrive at the net cash used in operating activities. The
non-cash items adjusted for the six months ended June 30, 2012 was approximately
$6,639,000, compared with ($604,000) for the six months ended June 30, 2011. The
increase from the same period in the prior year is primarily related to the fair
value of common stock issued in exchange for patent and technology rights of
$6,173,000.

Net Cash Flow from Investing Activities

Net cash used in investing activities was $6,000 for the six months ended
June 30, 2012, compared with $53,000 for the six months ended June 30, 2011. The
decrease was primarily due a decrease in purchases of equipment and furnishings
during the six months ended June 30, 2012 as compared with purchases for the
same period in 2011.

Net Cash Flow from Financing Activities

Net cash provided by financing activities was $9,680,000 for the six months
ended June 30, 2012, compared with $1,776,000 for the six months ended June 30,
2011. The increase was primarily due to proceeds from the issuance of preferred
stock of $8,500,000, net cash distributions to Galena in the amount of $699,000
and proceeds of $500,000 from a convertible note in 2012 compared with net cash
contributions from Galena of $1,730,000 for the same period in 2011.

Off-Balance Sheet Arrangements

We have not entered into off-balance sheet financing, other than operating
leases.